There is a scheduled date (every 2 weeks for my paycheck, every 6 months for my RSUs) where I will be given some <money> dollars if I am still working here. I will pay income tax on that income. One is in the form of money and the other is in the form of stocks, but really you should sell those stocks and buy something more stable and not tied to your employer.
If you quit or get fired, you won't get your paychecks on the days you expected to in the future. Nor will you get your RSU vests. Same thing. Just bigger numbers and lower frequency for one of them, with some additional variability in amounts.
They aren't golden handcuffs. They aren't job security or threats. They're just pay to keep you working, like anything else.
edit: I lost a word or two.
I would think, as a company, you would just be shooting yourself in the foot unless you did something like increased base-pay to cover the loss of RSUs.
It's no different than if they said hey, we're going to pay you less money every paycheck, because <reasons>.
All you can do is ask if your remaining pay is worth the work you do.
For example, they gave me $10000 RSU vesting over 4 years. Then they used the current share price, say $10 as the fair value. 10000/10 = 1000 RSU vesting over 4 years.
If within those 4 years, share values go down below $10 I have made a loss. Because $9 * 1000 = $9000 worth of shares. And it happened with my last employer.
In such cases, it is no longer a paycheck. Rather a bonus which might or might not pan out.
When I started searching for a job it actually put me at a disadvantage. Whenever I talked with employers who had no RSUs benefit plans they always tried to reduce the value of my total paycheck. The refrain often was "You said $10 but I see only $9. So, you are not getting $10000 shares rather $9000 worth of shares".
This sounds like a pittance. It’s only an extra $208/month. It doesn’t even pay for your average monthly gasoline expenses.
And it’s even less than what some companies give out for annual Christmas bonuses. It sounds like these companies give out these fake RSUs in order to avoid having to distribute a meaningful annual bonus.
If you consider the salaries being in the range of $2-3k a month. $208 is an extra 10% a month. I'd still consider RSU as a bonus than a paycheck.
I would gladly wear these handcuffs :D
Source: Work for a non publicly traded company and have RSUs not options, previously worked for a publicly-traded company that issued RSUs and options as part of comp
Your mental health?
Your physical health?
Watching your kids grow up?
Your marriage?
Etc. As other folks have alluded to it can sound relatively trivial (and sometimes it is, but often not) until you're actually staring into the abyss. The flip side is that quarterly RSU vesting is highly effective as a retention tool. I've known brilliant people pushed to their absolute breaking point before they finally leave (Amazon, I'm looking at you).
Besides, if you get fired from a startup and it's not for cause, then it's probably because there are layoffs, so it might be a bad choice to exercise your options anyway.
That definitely didn't happen at my company. We had a round of layoffs and the package offered to people who signed an agreement not to sue only included a couple weeks of accelerated vesting. There was no performance management system in place either, so the people fired were basically just the bottom of the stack rank their managers were asked to turn in, which was often based more on personal like or dislike than performance.
There was one engineer entering his fourth year, who had saved the company 30 million dollars during his term with infrastructure efficiency improvements, who was laid off and lost millions in the RSUs that would have vested that last year (he was on a 10/20/30/40% schedule). All the ICs speculated he was fired so the company wouldn't have to pay.
And that differs from the result of a performance management system how? Maybe that rank and file didn't have to spend as much time writing reviews?
That's a terrible vesting schedule, but he still made millions on the 60% he vested?
Well, I agree with you that they should, but they don't. I got laid off from a job a few years ago when my department was made redundant, and I only had 25% of my shares vested - they let me keep the 25% that was vested, but that was it.
That’s how I think of RSUs: they aren’t yours until they vest: they’re just like future pay, so you’re not really giving anything up if you leave “early”.
1) From an investment risk perspective, your personal livelihood is already significantly tied to the company because you rely on the company for a salary. Holding a significant chunk (relative to your total investments) of stock in your company as well adds to that risk.
2) Unless you're a C-suite exec, your actions will likely have no direct impact on the stock price. And obviously, insider trading is illegal. That means holding your own company's stock has no fundamental advantage over holding stock of a company you don't work for. If that's the case, you're better off picking stocks based on actual performance and eliminate the personal bias.
3) You can sell your RSUs once they vest in order to diversify, but you have to wait a year after vesting or short term gains tax will apply to any gains post-vesting. So, it might be advantageous to wait a year if you don't plan to sell immediately upon vesting. Also, with some companies, a portion of your shares will be surrendered back to the company to cover income tax on the shares.
4) From a tax filing perspective, RSUs and ESPPs can be a PITA. In my experience, tax software and general tax filing services often don't know how to correctly record the cost basis, which means you end up getting taxed twice if you don't know what you're doing.
5) When cash is tight, companies might lean more heavily on RSU-based compensation if they can't afford raises or cash bonuses. You need to make sure your company is giving you what you need.
6) The golden handcuff effect. You want to leave for a better job, but you've got a nice chunk of RSUs that haven't vested yet and could be worth quite a bit in just a couple more years. Is that new job worth the opportunity cost of giving up those shares? For companies that award RSUs as part of yearly performance reviews, you're pretty much always going to have some RSUs that are 3 years out from vesting. It's just difficult weighing the potential value of RSUs vs a new job's salary/benefits and whatever reasons you wanted to jump ship in the first place. It's very personal math and ultimately you have to determine an answer for yourself.
This is incorrect. RSUs, once vested, are taxed as income, and any gains or losses from the day they vest are treated as any other stock would be from that day on. There is no tax benefit in holding on to them rather than selling and diversifying.
This detail makes RSUs equivalent to income from an employee's perspective, and offers no incentive alignment post vesting IMHO.
That's still wrong. They purchase date of the RSU is on the issue date. Vesting is unrelated. You are thinking of "exercising" an option. This is not an exercise.
1. You get a RSUs. They are actual stock, but they are encumbered by the vesting schedule. 2. When they vest, you are now allowed to trade them, but your ownership start date is from #1. If you had a 180 day vest, you'd have to wait until a full year is up to avoid short-term gains, but if vesting took longer than a year, you've already held them for longer than a year.
Oh boy, this is a thing I have to watch out for every year. Even better are the inserts that come with my tax statements from the brokerages which state things in a very confusing way.
You'll continually get a raise each year and a portion of that will be new RSUs that vest over the next four years. If you ever want to leave, that continually means leaving a substantial amount of money on the table. Thankfully some companies will give you a hiring bonus equal to your unvested RSUs though (edit: the big tech companies poaching from each other will sometimes do it, for those asking).
As with all things labor related, RSUs are transactional. "Loyalty" shouldn't play into it because a large publicly traded corporation can only be so loyal to every one of it's employees.
I've never head of this before. Seems like 2-3 years of RSUs could easily be over $1 million for someone later in their career. A $1 million signing bonus would be insane.
Do you have any company names? Also, any numbers from your experience? I’d be quite happy to join pretty much anything for a 600K+ signing bonus.
(Simple Round Numbers) 1. Get Base 100k + RSU 100k over 4 years 2. You work hard, company does better, yay! 3. Stock goes up RSUs now = 200k 4. I am sorry we cannot give you a raise because your total compensation = (Base+All RSUs) is over out allowable funding for your role. No raise for you! But keep up the good work! 5. Anytime yet get stock #3 happens... you get stuck with a low base and monopoly money.
Try getting a bank to give you a loan with a huge RSU number... it can be done, but oh my god what a PITA.
If you think of RSUs as an investment, then its a different game. However, it is no different than owning stock on NASDAQ. You can get rich if you buy the right stock.
Hence, my perspective. All cash better than RSU. If you wanna buy stocks then just buy from stock exchange of whichever company you want.
Caveat: For startups where you get equity this argument doesn't hold true. There the startup might end up a unicorn and you make ton of money.
Even a bunch of giant companies like HBO/Samsung etc. got priced out for the same reason at least in a few cases I know.
Of course, having NFLX RSUs over the last 10 yrs would be worth more than the salary increase, just saying.
They allow the business to transfer some of the risk from them to you. Basically a kind of I'll pay you more if I can.
Think of it as, I'll pay you X dollars now, and in 4 years, I'll pay you an additional Y dollars * how much I can afford, unless you no longer work here. Where "how much I can afford" is basically the stock price.
It's better than the same salary without RSU. It's worse than a higher salary of equal worth. For anything in between, it depends on your risk tolerance and when you'll need the money.
Suppose after some time you start looking for jobs again, get another offer worth $215k/yr, and the stock price has done some movement. If the price is above $115/share, this would be a pay cut, so you decline the offer and state what it would take to get you on board. If it's below $115/share, you accept the job offer and get a pay raise.
This is what I mean by "optionality" here. If your employer's stock does well, you get an automatic raise from staying put. If your employer's stock does poorly, you get a raise with effort from finding alternate employment. You are more exposed to upside than downside in your employer's stock - it's effectively a call option with a strike price equal to the difference between your current cash compensation and your best alternative to negotiated agreement.
I'd rather have a dollar now versus the equivalence of a dollar in a stock which is unavailable for up to 4 years...
Even if your companies stock is out performing the market, I'd rather have a dollar now to buy company stock and keep my mobility.
Employees need to be careful to diversify their portfolio. A dollar today can be put in any type of investment, whereas RSUs can lead to folks having too much of their egg nest in one basket.
The 4th year of an RSU grant is just as unavailable as my base salary 4 years away.
Yes, there's the diversification problem but it's not like you have that same money upfront to invest in anything you want.
The only time shares are different is stock growth, and since stock on average grows the shares will on average be worth more in year 4 than year 1. And in some rare cases with huge stock growth you can see extremely large compensations as a result, but otherwise they are just like normal salary.
Almost I just view the amount that vests every year as a part of my annual salary and that's it. The total is really immaterial.
IMO people allocating RSUs are no safer than an engineer. They can easily get replaced. As a matter of fact, leadership can change directions at any time and now put you in a position where you’re miserable every day.
I see the two have perhaps some correlation but because you’ve been given a decent grant doesn’t guarantee job security. Too many other factors involved.
Is this in any way different from deducting normal salary from profits?
To answer the original question, no, not worth loyalty, but no money is. You can think of them as a slightly complicated raise. That being said, over the past 10 years, RSUs have been very good for a lot of tech workers. They may or may not continue to be good.
The point of the RSUs vesting, instead of just being granted all at once, is that you are incentivized to put in a real effort. If your efforts help result in the company doing well, you get to share in the profit -- your $1 award today becomes $5 by the time it vests. The value of your RSU increased in direct correlation to the value that YOU ADD to the company. It gives you skin in the game and keeps people working hard.
In fact, management is not incentivized to be stingy with some small "finite" number of RSUs. They are incentivized to hand them out liberally, giving everyone lots of reasons ($$$) to work hard hard hard.
As for RSU's, as others have mentioned, it is great to think of it as additional money and base everything on your base pay (pun unitended). Never sign up for a job where your base pay may vary based on RSU grants, I am surprised to read something to that effect on this thread.
As for job security, I don't think it is a function of your role, salary base pay or stock grants. It is a function of market dynamics and how your company is doing well in the space it operates in, so it is our job to keep an eye on that. If you see winds of change that may hurt you, one better ensure not getting caught in the crossfire.
So I think it is better to be loyal to your own career and the good side effect of that is being loyal to your role and hence your current employer!
Now it's worth mentioning that the stock could have also gone down, and frankly I am extremely skeptical of my own ability to predict this. So I wouldn't say I selected this offer based on the potential upside of the stock. But still, it's a nice upside.
The only reason I would agree with putting RSUs at a higher valuation is due to the vesting schedule - it often isn’t value now, but value in 2 years.
So obviously “cash now” vs “stock now” is equal as you point out, but “this much cash in two years” vs “the value of this much stock now, in two years” would make most people lean towards RSUs in that scenario. (Of course no one would really offer the former straight up, but I suppose thats what bonuses are)
True, but he or she implied it: if it weren't significant, it would be a disservice to the advice asker to distract him or her with the information.
When you are hired you are given a certain number of units based on your RSU package and the current stock price. Example: 400k package over 4 years, current stock price $1000. This means you get 400 units total or 100 vesting per year.
If the stock prices goes (up/down) the number of units do not change but the total value does. This could result in significantly (more/less) for your total compensation in a way that cannot be achieved by what you have described due to the timing differences in when cash from base pay becomes available.
One of the key benefits of RSUs is that they are priced and granted upfront and can appreciate (and earn dividends) before they vest.
A more concrete example: let's imagine you joined AAPL Jan 1, 2019 and were granted $100k in RSUs. You'd get 667 shares, and vest 83 shares every six months. If the stock doesn't move at all, that's the same as the additional salary (though salary is better since it's prorated evenly as opposed to bi-annual "bonuses").
Of course, the stock prices don't stay the same... and that's where the potential comes in. In the last year, AAPL has doubled. In that example, you would have vested 83 shares at $200 ($16,675) in the summer and 83 shares last week at $300 ($25k) vs. $25k salary in the first year.
In the same period, FB and GOOG have gone up 50%, AMZN has gone up 15%, NFLX (which doesn't do RSUs to my knowledge, only stock options) went up 6%. In all of those cases, you'd be better off in Y1 with the RSU grant.
Obviously, yes, there's downside risk to that too. The floor is still much higher tha stock options which can easily be worth nothing if underwater... but when you factor in that this is 20-50% of your total compensation, that upside/risk seems worth it.
If we count RSUs only, then the stock already has to be public, and it probably heavily weights towards FAANG and a pretty high average.
There is no way to be exactly sure what they will be worth. Stock prices not only go up and down but the “long term” (lower tax) date to sell them is even further away. Even well-known companies see major shifts in stock value.
RSUs are also a different “class” of stock typically, meaning that in the event of a catastrophe your shares are not at the top of the list. Company goes under? More important investors get their payouts first, your shares may be worth literally zero. Less if you believe in lost opportunity costs, etc.
I typically value them at some percentage of the current value of the stock (less than 100%) depending on the company. For most signing bonus RSUs you're getting some of them after a year anyways. That's not a long time to wait, so risk/opportunity cost is low.
At a startup or some privately traded company, yeah sure. Their value is effectively $0.
Save your loyalty for a nice non-profit or co-op doing some good thing that you feel passionate about in your community, just give your employer your time until such a time as things change and you feel it's no longer worth it.